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EU revises growth forecasts up slightly

By JUERGEN BAETZ Associated Press

Posted:
02/25/2014 05:47:38 AM MST

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The new headquarters of the European Central Bank (ECB), building at right, is under construction on the water front of the River Main,in Frankfurt, Germany, Monday, Feb. 24, 2014. The ECB is supposed to move into the building at the end of 2014.

BRUSSELS—Economic growth across Europe is expected to be slightly stronger this year as the recovery gains ground, according to the European Commission's new forecast released Tuesday.

The 18-country eurozone's economy is expected to grow by 1.2 percent in 2014 and by 1.8 percent next year—0.1 percentage points more each year than predicted in the Commission's last forecast in November.

"The recovery in the European Union is gaining ground and spreading across countries although it remains modest," said Commissioner Olli Rehn, the bloc's top economic official. "The worst of the crisis may now be behind us."

Spain stands out as firmly turning the page on a two-year recession. The Commission doubled its 2014 growth outlook for the country to 1 percent. Its high unemployment rate, however, is expected to fall only slowly below 26 percent this year.

For the eurozone as a whole, the jobless rate is seen as staying flat around the current record high of 12 percent, falling to 11.7 percent only next year.

The wider 28-nation EU, which includes members like Britain and Poland that don't use the euro currency, will grow by 1.5 percent this year and 2.0 percent in 2015, according to the Commission forecast. That outlook is also revised upward by 0.1 percentage points each.

Overall, solid growth in major trading partners will help Europe by boosting its exports, Rehn said.

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"The recovery in the European Union will be supported by the advanced economies, notably the U.S., while the emerging markets will fare quite uneven," he said at a news conference in Strasbourg.

Still, Rehn urged European governments to keep strengthening their economies' competitiveness and trim their deficits, saying the recovery remains modest and can't be "an invitation to be complacent."

The only countries that are forecast to remain stuck in recession in 2014 are Cyprus and Slovenia, set to see their economies shrink by 4.8 percent and 0.1 percent respectively.

Cyprus last year required an international bailout that requires it to overhaul its banking system and make tough debt cuts that are depressing the economy. Slovenia's economy is mainly held back by trouble with its banks and weak domestic demand.

In Greece, which has lost about a quarter of its economic output over a brutal six-year recession, the Commission continues to foresee a timid return to growth this year, of 0.6 percent. The unemployment rate is expected to fall only slightly below 26 percent.

The Commission expects the eurozone's overall government debt to stabilize around 95 percent of GDP before starting to slightly fall from 2015.

Inflation will remain subdued at 1 percent in 2014, ticking up to 1.3 percent next year, the Commission said.

Some analysts say the eurozone's low inflation rate—of 0.8 percent at last count— means the bloc risks falling into a deflationary trap, when falling prices lead companies and consumers to defer purchases and investments, denting growth.

"A fear of outright deflation is rather distant, not least because the European Central Bank has very clearly stated that it will do whatever it takes in order to counter any possible trend of deflation," Rehn said.